Ads on Cavs jerseys could cost $5 million

LeBron James and the 2016 NBA All-Stars had Kia patches on their jerseys for the first time.

A five-inch patch on LeBron James’ jersey could be worth well over seven figures a year for the Cleveland Cavaliers.

But at this point, more than a week after the NBA finally approved placing ads on jerseys, one of the few certainties is the size of the patch — a 2½-inch-by-2½-inch square.

When the league, four years after an effort to begin selling the jersey patches was tabled by its owners, announced a three-year pilot program beginning in 2017-18, commissioner Adam Silver estimated it could be worth $100 million a year. Eric Smallwood, managing partner of Apex Marketing Group, a sports sponsorship and analytics firm in St. Clair, Mich., thinks Silver’s estimate is a little low.

Smallwood, echoing the opinions of other analysts, believes the league could pull in $125 million to $150 million annually from the jersey patches. He thinks the Cavs’ haul, predictably, will depend on LeBron James still being on the roster after next season.

“Let’s just say everything stays consistent and LeBron stays,” Smallwood said. “I think you’re looking at as high as $5 million (a year) for Cleveland. I would couch that and say there’s a good range — $2 million to $5 million is probably the range. That’s a wide range.”

The uncertainty, however, is more attributable to the complications involved in any potential deal, and not because of a fear of James leaving town a second time or his play dramatically declining. There have been no signs of either for a team that’s a heavy favorite to advance to its second consecutive NBA Finals.

Instead, the sticking points will stem from the NBA’s already wide-ranging collection of lucrative partnerships. The same goes for its star players.

“There are a lot of components that are going into this,” said Smallwood, who has done a study on the value of jersey ads. “The relationships a team has with sponsors — are they exclusive? Are they prohibited from selling against exclusivities?”

A Cavs source told Crain’s the team has a “limited” number of exclusive agreements. The team, though, has more than a handful of seven-figure partnerships.

The Cavs, for example, might be hesitant to field an offer from an automotive company — or be prevented from it, depending on the contract language — because the team and James (and the NBA, for that matter) have lucrative deals with Kia. And the Cavs certainly wouldn’t strike a deal with a mortgage company, unless Dan Gilbert’s Quicken Loans wants its logo attached to the Wine and Gold.

“First of all, we’re going to be very thoughtful in our process and approach that we ultimately look to do this right and find the right partner as well,” Cavs CEO Len Komoroski said. “We will take those things into consideration as we approach the marketplace.”

Uncertainty abounds

The potential complications increase for a star-laden team such as the Cavs.

The Big Three of James, Kyrie Irving and Kevin Love have a wide-ranging endorsement portfolio that includes such industry giants as Nike, Coca-Cola, Pepsi, Samsung, State Farm and Foot Locker.

Would James, a longtime Coke endorser, or his representatives want to steer away from a Pepsi ad on the Cavs’ jerseys?

Questions such as that are why Silver admitted there was “enormous uncertainty” surrounding the jersey patches. Hence the ads being implemented on a three-year trial basis.

“Are we going to see deals that are determined and benchmarked on player contracts? It really could happen,” Smallwood said. “No other ad deal is necessarily trying to tie into a benchmark on that (a player staying or leaving). This is a direct ad on the player.

“If I’m a brand, I’m asking for those benchmarks. I want certain guarantees and certain restrictions. If I’m spending $2.5 million, $3 million, I want to know if I’m getting the value in Year 3, Year 4.”

But it’s not as if this is the first time there’s the chance of an endorsement conflict involving an NBA uniform.

Michael Jordan, Magic Johnson and Charles Barkley — Converse (Johnson) and Nike endorsers (Jordan and Barkley) — famously covered up a Reebok patch with an American flag when the 1992 Dream Team was awarded with Olympic gold medals in Barcelona.

And James, who in December agreed to a lifetime deal with Nike that reportedly is worth more than $30 million a year, has been wearing Adidas uniforms and warmups for the last decade.

The 2017-18 debut of the jersey ads, probably not coincidentally, lines up with Nike taking over the production and design of the league’s uniforms. The swoosh will be located on the upper right of each jersey, and the ads on the upper left.

Unique connection

The high cost of the uniform patches could limit the number of local sponsors on team jerseys. Smallwood said his initial study four years ago estimated that teams could fetch from $1.5 million to $7.5 million for the jersey ads.

The money will be counted as basketball-related income, which means the players should get an even cut.

Komoroski said the Cavs are viewing the jersey ads “on a broader scale” because of the franchise’s wide-ranging reach. The Cavs are in the NBA top 10 in social media followers, with more than 8.7 million combined on Facebook, Instagram and Twitter, and the franchise’s digital properties have a rapidly-growing international audience that is among the largest in the game.

“We’re certainly not at this juncture going to limit ourselves,” Komoroski said when asked about the breadth of a potential jersey deal. “We’re very fortunate to be part of a global game. It does create some unique opportunities and broadens the scope of a potential partnership.”

Smallwood, surprisingly, said he thinks the Cavs are in the middle of the NBA pack when it comes to the value of an ad on their jerseys.

“If you take LeBron out, they may move closer to the lower end,” he said.

But that seems very unlikely by the time the jersey patches are worn for the first time in the regular season. (A Kia ad appeared on the 2016 NBA All-Star jerseys.)

More definite is the approach teams will take in pursuing jersey partnerships.

Komoroski, the Cavs’ CEO, went into salesman mode when discussing the jersey ads, which will be the first worn by a major U.S. sports league. Major League Soccer and the WNBA already have ads on the front of their uniforms, but the NFL, Major League Baseball and the NHL do not.

“It’s a great opportunity for perspective partners to create a truly unique connection to our team,” Komoroski said. “That’s one of the points of separation versus many other opportunities that a partner can engage with.”

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